Chris Lombardi puts defense and security under the spotlight, as he shares his takes on recent NATO and EU cooperation and provides insight into the company’s own long-term strategic partnerships in Europe.

Three trends are currently driving the global electricity sector: decarbonization, decentralization and differentiation. Utilities are making significant contributions to mitigate carbon emissions, while a technology revolution is …

The Greek financial chicken-and-egg problem

Greece’s deal with its European creditors this week puts its badly-shaken banks at the heart and center of a possible third Greek bailout. But it’ll be months before the country’s financial system is back on its feet.

Even with billions of euros slated for the banks, Greeks are unlikely to regain enough trust to repatriate their capital cash into the financial system soon. And even if they do, banks won’t be able to resume what they are supposed to do: lending to the economy.

Eurozone states have pledged €25 billion, or about 30 percent of the proposed bailout, to recapitalize Greek banks.

The large size of the package is supposed to make the European Central Bank feel confident enough about the solvency of the country’s lenders to keep its emergency funding to the financial system unchanged at its current €90 billion ceiling. The tap would have been turned off had the latest round of negotiations failed.

The ECB may raise the ceiling later this week if the Greek Parliament agrees on Wednesday to pass the reforms it is being asked to implement to start talks on a third bailout.

Capital controls to stay

The depositors won’t be back so quickly. Banks will remain closed at least until a proper bailout deal has been concluded: “A rapid decision on a new program is a condition to allow banks to reopen,” the 19 leaders of the eurozone countries said in their statement Monday.

Negotiating a bailout will likely take a few weeks at least. Even after banks re-open, capital controls are expected to remain in place for months, which is the time needed for depositors to regain trust in their long-term viability. After its bailout in 2013, Cyprus kept its more limited capital controls in place for two years.

Meanwhile, why would anyone want to put his or her money back into a Greek bank if it can’t be taken out at will?

If anything, the main problem faced by Greek banks for the foreseeable future will be to prevent further withdrawals, let alone trying to lure back departed customers. The Greek government’s decision to impose limits on withdrawals and close banks the weekend before its second bailout expired on June 30 has damaged trust in the banking system.

Another reason for depositors to stay away is the still remaining risk of bank failures and state-led rescues. In this week’s deal, Greece has been asked to implement without delay the new eurozone bank resolution regime, which regulates and harmonizes throughout the monetary union the way that troubled lenders can be rescued.

Under this so-called “bail-in” regime, the cost of any cleaning up of banks wouldn’t be borne alone by shareholders through a recapitalization that dilutes the value of their holdings. It can require sacrifices of creditors as well and, as a last resort, depositors above the insured level of €100,000. Greek banks have some €30 billion in uninsured deposits; two thirds of that total belong to small businesses which, if their deposits are lost, would further hurt the economy.

Richer individual customers were among the first to pull their money from Greek banks last year, and they’re unlikely to bring their cash home until they have a better sense of whether it would be secure.

The bank clean up

Assuming depositors repatriate their money, that would not be enough to allow Greek banks to resume proper lending. The recession and the aggravating impact of the last six months of political turmoil explain why Athens and its creditors agree that bank balance sheets have to be cleaned up.

Under the terms of the deal, €10 billion of the €25 billion of the money for the banking system will be made “immediately available” — as soon as a proper bailout has been agreed. This tranche would come from the European Stabilility Mechanism, the eurozone’s bailout fund, and would likely be the first disbursement from the program, according to an EU official.

The part of the bailout that goes to recapitalize banks will ultimately be paid back by half the proceeds of the €50 billion special privatization fund created to guarantee the Greek government will make good on its part of the bailout deal.

That may indicate that the state-owned stakes in Greece’s four major banks will be part of the fund — and ultimately destined to be privatized.

It’s unclear whether €25 billion of capital will be enough to rebuild the banking system. The fast deterioration of the Greek economy in recent months has increased the amount of bad loans on the banks’ balance sheets. Moody’s recently estimated that they could reach up to 40 percent of the total book by the end of the year.

Putting the amount banks could recover on those “non-performing loans” at a conservative 40 percent would translate into a €60 billion loss, according to some estimates. Those losses would wipe out both the provisions already passed on the loans and the capital of the banks — more than half of which is considered dubious, since it basically consists of deferred tax claims on the government.

So it may be that the “bail-in” might prove necessary on top of this.

Greek banks need depositors, capital and clients to which they could lend money in a growing economy. After Monday’s deal, Greece is still left to grapple with a financial Catch-22: There can be no proper banks without a sound economy, and no strong economy without decent banks.